University of Alabama Law Professor Julie Anderson Hill has posted a draft of a work-in-progress, an article for an upcoming Case Western Law Review Symposium Issue, entitled "Banks, Marijuana, and Federalism." In it, she explores the legal issues surrounding banks providing banking services to state-legal marijuana-related businesses in more depth than you'll see on the pages of this rag. While it requires some polishing (including the addition of a specific discussion of Fourth Corner, the Colorado cannabis co-op, in a section in the later portion of the article that she discusses in passing earlier in the article), I found it to be a valuable addition to the analysis of the risks to banks that want to provide services to such businesses.
Here's a portion of the "abstract" of the article provided by Professor Hill, which summarizes her approach and conclusions:
This article explores the root of the marijuana banking problem as well as possible solutions. It explains that although the United States has a dual banking system comprised of both federal- and state-chartered institutions, when it comes to marijuana banking, federal regulation is pervasive and controlling. Marijuana banking access cannot be solved by the states acting alone for two reasons. First, marijuana is illegal under federal law. Second, federal law enforcement and federal financial regulators have significant power to punish institutions that do not com-ply with federal law. Unless Congress acts to remove one or both of these barriers, most financial institutions will not provide services to the marijuana industry. But marijuana banking requires more than just Congressional action. It requires that federal financial regulators set clear and achievable due diligence requirements for institutions with marijuana business customers. As long as financial institutions risk federal punishment for any marijuana business customer’s misstep, institutions will not provide marijuana banking.
Among the many fascinating (to a nerd like me, at any rate) observations made by Professor Hill was the following potential problem with the Federal Reserve approving Fourth Corner's access to the federal reserve payments system:
If the Federal Reserve provided payment services to a cannabis credit co-op, the Federal Reserve and its employees would be engaging in money laundering. They might also be conspiring to manufacture and distribute marijuana, aiding and abetting the manufacture and distribution of marijuana, and acting as accessories after the fact for the manufacture and distribution of marijuana.
As long as they don't process payments for payday lenders, online dating services, or Smith & Wesson, they should be safe from prosecution under the "prosecutorial discretion" mantra chanted by the present executive branch monks until the current administration vacates the White House. The problem with that approach is that the statutes of limitation will not have expired by the time new Attorney General Ted Cruz decides to wage a little MJ jihad on every Justice Department and federal bank regulatory agency official who looked the other way when some bankers in Colorado or Washington lit up a fat boy and followed the money.
I also agree with her conclusion that, while action by the U.S. Congress is necessary, it's not enough. A change in attitude by federal bank regulators will also be required, whether of not we get a federal legislative fix. If due diligence requirements make it too risky and expensive to bank these businesses, then marijuana businesses are going to find themselves continuing to face problems that only a third-party payment processor or payday lender could truly appreciate.